Information regarding Maxwell’s direct labor cost for the month of January follo
ID: 2484989 • Letter: I
Question
Information regarding Maxwell’s direct labor cost for the month of January follows: Direct labor hourly rate paid $29.80 Total standard direct labor-hours for units produced this period 12,300 Direct labor-hours worked 12,100 Direct labor rate variance $17,300 favorable
Required: 1. Compute the standard direct labor wage rate per hour in January. (Round your final answer to two decimal places.) 2. Compute the direct labor efficiency variance. (Round your standard direct labor rate per hour to two decimal places and your final answer to the nearest whole dollar amount.)
Explanation / Answer
1)
Direct labor rate variance
= Actual Quantity x Actual Rate - Actual Quantity x Standard Rate
Direct labor rate variance will be favorable when actual rate is less than the standard rate and the value will be negative for the above calculation.
So, - 17,300 = 12,100 x 29.80 - 12,100 x Standard rate
So, 12,100 x Standard rate = $377,880
So, Standard rate = $377,880 / 12,100 = $31.23 per hour.
2)
Direct labor efficiency variance
= Actual Hours x Standard Rate - Standard Hours x Standard Rate
= 12,100 x $31.23 - 12,300 x $31.23
= $6,246 Favorable.
The variance is favorable as the actual labor hours taken is less than the standard labor hours.